IRS Provides Model 457 Plan Amendments

Revenue Procedure 2004-56provides model amendments that may be used by a State
or local government eligible employer to amend or draft a §
457(b) plan.
However, the revenue procedure does not apply to
eligible § 457(b) plans of tax-exempt entities or
ineligible plans under § 457(f).

>Plans of deferred compensation described in the
Internal Revenue Code (IRC)
§
457 are available for certain state and local governments
and non-governmental entities. They can be either eligible
plans under
§
457(b) or ineligible plans under
§
457(f). Plans eligible under 457(b) allow employees of
sponsoring organizations to defer income taxation on
retirement savings into future years. Ineligible plans may
trigger different tax treatment under 457(f).

The Model Amendments have been prepared to conform
with the applicable § 457(b) requirements, taking into
account the general requirement that an eligible plan must
include all of the material terms and conditions for
benefits under the plan, the IRS said.
For example, the Model Amendments do not incorporate
the applicable legal requirements by reference, but instead
describe those requirements in a manner intended to enable
the plan administrator to implement the plan provisions on
the basis of the language of the Model Amendments to the
extent feasible.

Additionally, the Model Amendments contain optional
as well as required provisions that may be used in adopting
an eligible plan.
For example, eligible § 457(b) plans have the option
of containing features such as:

service distributions from rollover
accounts;

distributions for unforeseeable
emergencies;

loans;

plan to plan transfers;

distributions of smaller accounts to eligible
participants.

However, if the optional provisions are used, the
optional provisions must meet, in both form and
operation, the relevant requirements under the IRC and
the regulations, as well as operate in accordance with
the terms of the plan, the IRS stipulates.

The IRS invites plan sponsors and other interested
parties to comment on the Model Amendments.
Comments should be received by November 30,
2004.